Compensation and Benefit Guidelines for the Diocese of Virginia

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1 Compensation and Benefit Guidelines for the Diocese of Virginia Effective January 1, 2012 (Modified November 10, 2011) The initial element in deriving a suggested increase in compensation for the ordained and lay employees in the Diocese of Virginia is tied to the cost-of-living index established by our nation's government for those receiving Social Security benefits. A secondary range of more localized inputs, as described in the paragraph below, are used for a Virginia-biased adjustment figure. Local church leaders may choose to consider compensation levels of similarly engaged professionals for information that may serve as a comparative guide in addition to these diocesan guidelines. As with recent years, the guidelines for federal employee increases from the United States Department of Labor, the Office of Personnel and Management and the Bureau of Labor Statistics (South Urban USA) were used in computing the recommended guidelines, as well as data from the Church Pension Group (CPG), the Federal Reserve, the Virginia Retirement System, and the Virginia Employment Commission and Office of Compensation and Policy. Consideration is given to year-to-date information for the Consumer Price Increase for 2011, trailing 12-month inflation trend and projections for both CPI and inflation for While the majority of these guidelines are intended for all employees in the diocese, there are some elements that are specific to ordained staff. A separate lay compensation survey is asked of all churches in the diocese on an annual basis and that report is always posted on the diocesan web page. Please note that several requirements of General Convention will impact budgeting throughout the Episcopal Church. Effective January 1, 2013, there will be a required Lay Pension provision as well as specific health insurance requirements, each of which is addressed in these guidelines. Additional information will continue to develop in late 2011 and during CPG compensation data places Virginia clergy among the highest in the Episcopal Church (based on a full-time proxy cash compensation of $34,000, plus housing, as a threshold for 2011). For the purposes of this report, 195 persons met the proxy threshold as of June 30, The median income for a clergy person in Virginia, using June 30, 2011 data, is $71,695. The median career service for these Virginia clergy is years of compensated ordination. As an aside, the two-year average of median total household income in Virginia is currently $61,126. It should be understood that any median in such studies for our clergy is weighted towards the larger population areas as our clergy in Northern Virginia and Richmond comprise 74 and 41, respectively, of the 195. While the suggested compensation increase is weighted using data from across the diocesan boundaries, wardens and vestries should take into account the cost of living in their specific area. Compensation levels are closely tied to the size of a congregation and span of control, referencing the complexity of operations for which an ordained employee might have responsibility. Understanding that governmental COLA adjustments strongly impact the calculations, and that the domestic and global economies are tenuous, at best, the 0.7% 1.1% estimated increase planned for Social Security in 2012 drives the suggested minimum cash compensation increase for Diocese of Virginia employees for 2012 of +1.3%.

2 2012 Compensation Guidelines The salary tiers reflect extensive analysis of clergy service by CPG. Also taken into account for these guidelines are span of control and how churches with multiple staff support their clergy. For three years, we have tracked an analysis of medians in credited service, cash compensation, total compensation, s well as averages for each of those elements. There is an adjustment for 2012 in the break between the fourth and fifth tiers of years of experience for a priest, shifting from 18 years of credited service to 19 years of credited service. This adjustment is closer to the reality of what the three-year analysis shows for the clergy of the Diocese of Virginia. Please consider the following chart that now includes the minimum suggested cash salary, as well as basic adjustments to create a minimum total compensation package (to include cash salary, SECA and housing). The housing figure of 30% is the baseline adjustment that CPG will make for clergy in provided housing. As of June 30, 2011, the average portion of clergy compensation in Virginia reported as housing is 35.11%, so the long-standing CPG formula for clergy in provided housing (30% of cash compensation + utilities) remains fair and valid. Given the complexity of clergy compensation, this grid may give a better overall picture of compensation models. Think first of a total compensation package, and then determine what part of that compensation is a reasonable (and tax code compliant) amount for housing. The following model templates are then recommended for clergy in 2012: Cash Housing (35.11%) SECA Total for Pension Deacon $ 34,750 $ 12,201 $ 3,592 $ 50,542 Priest 1 year up to 3 years $ 38,200 $ 13,412 $ 3,948 $ 55,560 3 years up to 7 years $ 43,300 $ 15,203 $ 4,475 $ 62,978 7 years up to 12 years $ 46,350 $ 16,273 $ 4,791 $ 67, years up to 19 years $ 53,200 $ 18,679 $ 5,499 $ 77,377 Over 19 years $ 67,900 $ 23,840 $ 7,018 $ 98,758 For currently employed clergy, the suggested guideline for 2012 is a minimum 1.3% increase in cash compensation. It is also recognized that local circumstance must be considered in applying the suggested increase. In some instances, vestries will wish to recognize excellence in leadership by their clergy (or lay) employees. In these instances, merit increases over and above the minimum of 1.3% ought to be considered and offered. Such increases serve both to reward excellent service in the past and to encourage the same in the future. The Diaconal compensation guideline is intended for the transitional deacon. In the Diocese of Virginia, it is assumed that the newly ordained deacon is paid at this suggested level for one full calendar year and that compensation at the priest level begins at the conclusion of that 12-month period.

3 Compensation Clergy Part-Time These guidelines are generally designed for full-time employees in the Diocese of Virginia, but it is understood that there are many part-time positions supporting much needed ministries. While calculating the total cost of a part-time package, all facets of compensation need to be considered. For example, compensation and benefits for a one-half time clergy position might entail the following: a. 50% of the full-time minimum standard cash salary for years of experience. b. The fair rental value housing allowance, or provision of a rectory; but the fair market value as defined is the cap, not one-half of the fair-market value. c. SECA reimbursement, explained below, of 7.65% of the sum of cash salary and housing (plus utilities) allowance. d. Pension premium amounting to 18% of salary, housing allowance, and SECA. e. Health Insurance with the minimum standard being in accord with the requirements of General Convention A177, as developed by the Diocese of Virginia for the required effective date of January 1, f. Items that are negotiable include: Dental, Long-term Disability Insurance, Life Insurance, a budgeted amount for travel, a budgeted amount for continuing education and an agreement on paid versus unpaid leave. If a clergy person functions at a rate such as three-quarter time, or one-quarter time, it is expected that commensurate compensation and benefits will be provided. Compensation Clergy Taxes Payroll and Tax Reporting Since 1989, the completion of Form I-9, which verifies a person s eligibility for employment, has been required for all employees, including all compensated clergy. While this issue has been covered on a regular basis at the Treasurer s Conference and in the Manual of Business Methods, this is standard operating procedures for the churches in the Diocese of Virginia. For those churches and institutions availing themselves of a payroll service, especially the Episcopal Church payroll service, the completion of a Form I-9 is required for the use of the service. Many questions on the Episcopal Payroll Service can be answered through this link: Likewise, each compensated employee should have a Form W-4 completed prior to being paid. The Form W-4 is a short form in which each employee indicates the desired tax withholdings for the coming year. The Form W-4 should be revised if an employee s personal circumstances change. All employees of a church institution should receive a Form W-2. This includes all clergy with the exception of supply clergy. Supply clergy should receive a Form 1099 at year-end for the total of the compensation paid to them in the prior year. Again, ONLY supply clergy should receive a Form 1099.

4 Compensation Clergy Taxes - Social Security and Self-Employment Tax Clergy compensation is a taxation hybrid and can present challenges regardless of where a priest may serve. In the Diocese of Virginia, clergy compensation should include an amount equal to 7.65% of total compensation, which represents one-half the self-employment tax rate up to the ceiling ($110,100 for 2012) for Social Security. This amount was held flat for 2010 and 2011 as there was no COLA for Social Security paid benefits but is now increased for The Medicare portion of this tax is 1.45%, which does not come under any ceiling. The SECA contribution by the church is fully taxable income for the cleric. This amount is also included in the pension calculations as shown in the chart on the prior page. The 2013 ceiling should be available in the fourth quarter of 2012 from the Social Security Administration committee with oversight. When issued, a revised set of these guidelines will be posted to the diocesan web page. The 2010 Tax Relief Act, a tax reform for 2011 allowing for the reduction in self-employment social security tax rate from 12.4% to 10.4% DOES NOT impact how a church pays its clergy. This was for 2011 ONLY and as of November 10, 2011, there has not been an extension for PLEASE NOTE: The Internal Revenue Code states self-employment tax (SECA) is payable on cash salary, a utility allowance, and the parsonage ( housing ) allowance OR the value of housing provided by the church employer. Federal income tax is also payable on that portion of a parsonage allowance not otherwise used to provide the housing ( excess allowance ). Compensation Clergy - Supply As a means of budgetary planning, supply clergy in this diocese are typically paid by the day for the number of services officiated. If you ask additional services of the clergy, such as adult forums, hospital visitations, and so on, please consider that with a $71,695 median compensation for full-time clergy in Virginia, an hourly rate would be $ As you ask your supply priest to assist you, please consider the additional time involved to prepare and travel for services, as well as other duties such as coordinating music selections, and not just the time frame for your scheduled church services. For 2012, it is suggested that a cleric be paid $175 for one service, $250 for two services and $300 for three or more services. Mileage should also be reimbursed at the standard diocesan rate, which is 55 cents per mile for The mileage rate mirrors the Federal Governments use of the IRS determined standard mileage rate which is defined for business and is based on an annual study of the fixed and variable costs of operating an automobile. This figure may be adjusted for 2012 and changes to diocesan guidelines based on any adjustments will be made known as soon as possible by the Office of the Treasurer. PLEASE NOTE: If you have a supply (perhaps short-term interim) priest who earns more than $200 for three consecutive months (not including travel reimbursements), pension assessments are required to be paid for these priests. The exception to this rule is if the priest in question is retired under Church Pension Group rules. All supply clergy should receive a Form 1099.

5 Compensation Clergy - Vocational Deacons Diaconal ministry is understood as one which takes on the characteristics of both servanthood and leadership. The diocese began ordaining persons to the vocational diaconate during There is a sample Letter of Agreement (LOA) on the diocesan web site, and the information provided for Vocational Deacons will continue to expand over time. The model in the Diocese of Virginia typically involves a three-year placement by the Bishop with the agreement of the clergy in charge of a church. The Bishop may also place a deacon in a mission church to serve as the representative of the Bishop. Vocational deacons will typically not receive compensation (salary, housing or housing allowance, pension payments) beyond reimbursement for required expenses, such as mileage. Provision may also be made for the deacon to have access to a church discretionary fund. They shall be entitled to periods of leave from professional responsibilities according to their LOA. Again, as noted, as the diocese becomes more familiar with the role and responsibilities of the vocational diaconate, additional information will be included in these guidelines, as well as on the diocesan web site. Compensation Clergy Housing Allowance Overview and Vestry Duties The diocesan guideline for an allowance for housing and utilities was established in The parsonage allowance as it is called by the IRS, must conform to the tax code. The Clergy Housing Allowance Clarification Act of 2002 made clear the tax code in terms of the fair rental value test for those clergy who own their own home. The fair rental value of a fully furnished home, plus utilities, is the target amount to be established to reflect the cost of either clergy-owned or church-provided housing. The new act voids the decision in Warren v. Commissioner [TC 23 (2000)], which had reversed the test referenced above and which had modified Section 107 of the Internal Revenue Code. Section 107 of the IRC, up until the Warren case in 2000, had been unaltered since The housing allowance, or the parsonage allowance, is not subject to income tax, but is subject to selfemployment tax. When the term housing/parsonage allowance is used, it is meant to include housing, utilities, furnishings, etc. Even though clergy receive a tax benefit from the housing allowance, they are still allowed to deduct mortgage interest and real estate taxes as itemized deductions. The housing allowance is reported in Box 14 of the W-2, which is an information only box, and noted as Section 107 Allowance - $XXX,XXX. Section 107 of the Internal Revenue Code outlines the parsonage allowance. The allowance must still be church designated (typically prior to beginning of the next fiscal year), and this must be done in advance of the allowance being taken for each employed priest, meaning that it cannot be acted upon retroactively to suit a specific situation as the tax code clearly disallows any claimed reductions not covered. Clergy and churches are encouraged to discuss any needed amendments for year 2011 and plan for the allocation for 2012, but please note that a housing resolution is still prospective in nature and cannot look backward prior to the point of revision. The vestry should periodically review the allowance to make sure only allowable costs are taken into account and that the designated allowance is within reason. The vestry should be familiar with the terms of what the limits are in considering the fair rental value, fully furnished with utilities, for such a residence. At the time of a cleric s death, the parsonage allowance terminates for the surviving spouse from that point forward. This does not apply in the case of a clergy couple. For the surviving non-clergy spouse, the parsonage allowance will be pro-rated for tax purposes for the year in which the clergy spouse dies.

6 Compensation Clergy Housing Clergy Couples Clergy couples are limited to the equivalent of one housing allowance between the two incomes. In this instance, clergy need to be mindful of the amount requested by each spouse in the annual housing allowance resolution of their respective vestry or vestry committee. If either spouse has access to a 403b retirement plan, such as the RSVP plan through the Church Pension Group, a judicious use of the aggregate housing allowance being split between a clergy couple can maximize the use of such a plan. 403b plans do not count the housing/parsonage allowance in the base for computation, so sharing the allowance properly can maximize use of the plan. It is strongly suggested that clergy consult their financial advisor and/or accountant in the decision-making process for the housing allowance. Compensation Clergy Housing Sample Resolutions Resolution of the Church of the Holy Grail, Richmond December XX, 20XX If the clergy person lives in his or her own house or rents a non-church owned house Whereas the Rev. Jane Smith is employed as a minister of the Gospel by Church of the Holy Grail in Richmond, Virginia, which does not provide a residence for her, the vestry resolves that of the total annualized compensation of $(total amount) to be paid to the Rev. Smith during 20XX, that $(housing amount) be designated a parsonage allowance within the meaning of that term as used in Section 107 of the IRS Code of 1986, and clarified by the Clergy Housing Allowance Clarification Act of If the clergy person lives in church-provided housing Whereas the Rev. John Doe is employed as a minister of the Gospel by Church of the Holy Grail in Richmond, Virginia, which, although providing a residence for him, does not provide full cost of maintaining and furnishing such a residence, the vestry resolves that of the total annualized compensation of $(total amount) to be paid to the Rev. Doe during 20XX, that $(utility/furnishing allowance amount) be designated a parsonage allowance within the meaning of that term as used in Section 107 of the IRS Code of 1986, clarified by the Clergy Housing Allowance Clarification Act of Sunset Clause: In either case, it would serve the church well to include the caption that this stated parsonage allowance will remain in effect unless modified and approved by the church. This caption will protect the church and the benefits to the clergy person if the approval does not happen until January or February of a particular year.

7 Compensation Clergy Misc. Housing Shared Equity As a means to attract clergy, the use of a shared equity arrangement may be a great tool in negotiating a Letter of Agreement (LOA). If such an agreement is utilized, it must be part of the LOA (or a revised LOA) agreed to by the cleric and vestry. In short, shared equity means that the clergy person and the church will be partial owners of a purchased residence. This is a legal contractual arrangement and the use of a real estate attorney is recommended to make sure that titling is appropriate for Virginia. As a result of this split ownership, this property is not absolutely church-owned, and does not qualify to be free of property tax. There are several models to use in such arrangements. The most common involves a simple percentage of ownership based on the purchase price and this is the same percentage used at the time of sale to divide proceeds (assuming any capital improvements were shared equally). As this is typically done to facilitate down payments, it is common to have a buy-out provision after a specific time (typically three to five years), giving the clergy person the ability to repay the church its proportionate share of the current market value and therefore the cleric would own the house outright. If you have question on this topic, please call the diocesan Office of the Treasurer if you have questions as a template has now been developed. Compensation Clergy Misc. Housing Equity Fund/Equity Allowance For clergy who reside in church-owned housing, vestries may consider the use of a housing allowance equity fund. This could be accomplished by using a 403b product, such as the RSVP product of the Church Pension Fund. This benefits the clergy in that such a fund provides some manner of a substitute for the appreciation of owning a home in the area served. The use of such a fund would serve the church well in helping to retain experienced and beloved clergy. These funds are generally put in place to assist the clergy with living arrangements in retirement, as they may have not had a chance to build adequate equity or cash reserves while residing in church-owned housing. Please keep in mind that, as an employer-paid benefit, the amount contributed would be included in the total compensation assessable for pension. Some models for such funds might include: a. The estimated annual appreciation of the market value of the parsonage. For example, a home valued at $200,000, in an area appreciating at 1.5%, would require an annual contribution of $3,000. b. A baseline amount that increases on an annual basis to a certain level ($500 in year one, $1,000 in year two, etc up to $2,500/yr, or some agreed upon maximum) c. A flat percentage of compensation (1% of total assessable compensation, for example). There are many options in setting up an equity allowance, but a floor (the lowest possible amount) and a ceiling (the highest possible amount) for any given year should be included in the design to consider the minimum and maximum ranges that a church might face when funding such a benefit. Clergy should keep in mind that this is an optional benefit, and not an entitlement. Church leaders should keep in mind the use of an equity fund as a means to attract, reward and retain excellence.

8 Compensation Clergy Work After Retirement Once an ordained person is retired under the rules of the Church Pension Fund, and is still under 72 years of age, they may not earn more than 50% of the median compensation for all active clergy. This threshold is determined by the Church Pension Fund each year. For 2012, this median amount is a $34,500 threshold. The 2013 threshold figure will be released by the end of If a church employer wishes to employ a retired cleric that either (a) retired from that same church or (b) will receive remuneration in excess of the threshold (again, $34,500 in 2012), the church must request that the Bishop of Virginia complete an Application for an Exception to the Rules for Work After Retirement. The Bishop must also include a letter detailing why such an exception, rather than hiring an active clergy person, is important to the mission strategy of the church and of the diocese. It is not often that the Bishop will consider doing so and church leadership must make an excellent case. Given that the request being made is to allow a priest to exceed a generous threshold, effectively taking a position an active priest might be engaged in, and still receiving full pension benefits, the Church Pension Fund takes a very hard view of such applications. The application can be found in the forms section of and planning by church leadership should allow enough time such that, if the Bishop agrees to petition the Church Pension Fund review board, a final application may be delivered no later than six months prior to the suggested start of the exception period. If approved, the exception is for a one-year period only. In addition and as a summary, there is no need to request an exception if: 1. The retired cleric is working outside of the Episcopal Church, meaning: a. The retired cleric is working for another denomination b. The retired cleric is working for in a secular position. 2. The retired cleric will receive less than the threshold amount in any 12-month period from a specific Episcopal Church employer 3. The retired cleric is at least 72 years of age and is NOT seeking to be employed at the church from which they retired. Additional information on the WAR rules may be found on the Church Pension Group website, or you may call the Treasurer of the Diocese of Virginia for advice.

9 Compensation Clergy Pension Basics When a priest earns more than $200 for three consecutive months, the canons of the Church require payment of pension assessment by church employers of 18% of the total of: 1. Cash Salary $ 2. SECA Reimbursement $ Subtotal A 3. Plus Housing and Utilities (30% of above subtotal OR actual allowance) $ 4. Employer Paid 403b Plan Contribution (if provided) $ (This could be an Equity Allowance ) Subtotal B 5. Pension Assessment Subtotal B times 18% $ $ $ Please note: 1. This assessment is required to be paid for any clergy employed by an Episcopal Church institution for three consecutive months and paid more than $200 per month. Assessments may be paid voluntarily on behalf of employed clergy who earn less than $200 for periods in excess of three months. Each amount is exclusive of reimbursed travel or business expenses. 2. The revised Church Pension Fund benefits guide is available on the CPG website. It is highly recommended that all clergy read this immensely helpful booklet to better understand the contribution, pre-retirement planning and active retirement phases of the CPG benefits, as the benefits continue to expand. 3. All clergy should understand that there is a two-year window in which they can make corrections to compensation as reported to CPG. Once this period has passed, benefits are based on the locked-in figures. Two annual statements from CPG go to all clergy and these reports update clergy on known compensation, known employers and credited service time as a priest of the Church. It is the responsibility of the cleric to verify the information on these documents when they are received and to take action if the information is not correct. 4. The Church Pension Fund, through their website, provides the Episcopal Church clergy with an excellent guide for the preparation of each year s taxes. This document can be given directly to an individual s tax preparer for clarification on clergy taxation. 5. The Church Pension Fund provides much more than simply retirement funds for Episcopal Clergy. Additional information, including a full definition of cash salary components can be found at the website.

10 Compensation Laity Benefits - Pension In adopting Resolution A138, General Convention 2009 approved the canonical change requiring the provision of a pension benefit for any lay employee of the Episcopal Church employed (and compensated) for 1,000 hours or more per year and to utilize the Church Pension Group standards as a baseline. This provision for these eligible employees is to be in place no later than January 1, There are two standard types of plans for the provision of a lay pension: a Defined Benefit Plan (DB) and a Defined Contribution Plan (DC). If a church is not yet offering lay pension benefits and will be required to do so based on current staffing, it is strongly suggested that contact be made with the Lay Pension Client Engagement office at Church Pension Group at A great deal of information can be found at including details on plan designs, enrollment and ongoing benefit management. In short, the DB plan is much like the clergy pension plan, with an employer contribution ( assessment ) of nine-percent of total compensation. The employee is guaranteed a benefit by formula based on compensation and years of service. The DC plan requires a base contribution by the employer of fivepercent of total compensation, and a required match of employee contributions up to an additional fourpercent. This means the employer is capped in either plan to a maximum of nine-percent of total compensation. The DB plan does not require any investment decisions to be made by the employee while the DC plan does requirement the employee to elect specific investment funds for the money contributed on their behalf. During 2011, the Treasurer s office completed a project with CPG to identify all Episcopal entities within the diocesan boundaries. This institutional roster will be used by CPG staff to begin the process of contacting all entities to confirm relevant data on the lay employees of each diocese. The information gained will lead to five options if an employer has eligible employees: 1. If an entity does not have either a DC or DB plan in place, the entity MUST adopt a CPGsponsored plan to be effective January 1, If an entity has an existing DC plan not currently through CPG, the entity MUST adopt the CPG DC plan to be effective January 1, It must be stressed that the entity should not terminate the existing plan, but rather freeze the existing plan. 3. If an entity has an existing DB plan not currently through CPG, the entity may retain the plan, but must annually certify to CPG that the plan complies with the requirements of A138. A sample letter as to this certification will be provided on the CPG web site. 4. If the entity is a school with an existing plan at TIAA-CREF, the entity may retain the plan, but must annually certify to CPG that the plan complies with the requirements of A138. A sample letter as to this certification will be provided on the CPG web site. 5. If the entity has an existing plan with CPG, the effort will be to ensure that all eligible employees are enrolled and that funding levels comply with the required specifications of A138. During 2012, registration for employees will be managed through a self-service web portal on the CPG web site. Please call the Treasurer s office for additional help, or call the CPG Lay Pension Services office at

11 Compensation Laity Benefits Survey of Compensation The Office of the Treasurer issues a survey each year asking the churches of the diocese to provide compensation information on compensated lay employees. This data is compiled into two usable formats and then posted on the diocesan web site for the general use of the diocese. The report provides information on a dozen or so typically used staff positions, the number of hours employed per week, the paid compensation and the various benefits provided to that staff person. For the issued report, the individual information is now presented not only in a diocesan-wide summary of these named positions, but also by merging the 15 Regions of the diocese into geographically similar reports. The 2011 report was posted in September 2011 and can be found at this link: With the adoption of a standard for health insurance parity, as described elsewhere in these guidelines, lay employees are to receive the same health insurance benefits as clergy employees. Again, as noted, this requirement is effective January 1, Insurance Disability Long-Term The Diocese of Virginia sponsors a Long-Term Disability (LTD) product that is available to all employees of the churches and diocesan entities. The current carrier is Mutual of Omaha Life Insurance Company. Mutual of Omaha is well-known as a leader in providing employee disability benefits. This Mutual of Omaha LTD product provides a benefit of up to 60% of salary up to $5,000 per month, up to age 65. This benefit is accessible after a 90 day waiting period, which coordinates with social security benefits. A more complete description is available from the Treasurer s Office in Richmond. The cost of coverage is computed on a compensation volume basis. This volume is at a cost of $0.31 per $100 of covered payroll, which is a savings over the prior carrier. The contract with Mutual of Omaha is a three-year agreement running through 2012, so we have locked in lower rates than current over a longer period, which is a benefit to all involved. The transition to Mutual of Omaha for LTD coverage also allows each employer to decide if an employerpaid benefit (as with prior contract) or an employee-paid benefit (new option) is preferred. The reason for this choice is taxation related. If there is a claim and the benefit is employer-paid, the disability payments to the employee are taxable income. If there is a claim and the benefit is employee-paid, there is no taxable income to the employee. The employer can also provide the benefit as a gross-up model, by which the employee s compensation is increased in the amount of the currently paid amount by the employer and then the premium is reduced from the employee s compensation. By grossing up the compensation, the employee benefits from what the employer is typically already paying. As noted, all employees of the Church (clergy and lay) are eligible to participate in this program. If you have questions about the LTD product and inclusion for staff (clergy and/or lay), please call Ms. Millie Lofton or Mrs. Joy Buzzard, at DIOCESE, or you may them at mlofton@thediocese.net or jbuzzard@thediocese.net. The diocesan staff handles the group billing, as it does for the health and dental plans. A disability benefit is also included within the clergy pension benefits, and it is a modified type of LTD insurance. For a better understanding, please consult the Church Pension Fund benefits handbook. You can find the current handbook at and look under publications.

12 Insurance Disability Short-Term The Church Life Insurance Corporation (CLIC), a division of the Church Pension Group, administers a Short-Term Disability plan for the benefit of the Episcopal Church. Unum is the short-term disability provider for the CLIC program. We have had rare premium increases for this product and 2012 saw no such increase in rates. Church Life Insurance Corporation will notify all participating churches and institutions that have currently enrolled lay employees of any future increase. Unum is a recognized leader in this type of insurance and the Diocese of Virginia has utilized Unum in prior years for diocesan-managed disability insurance products. This is a long-standing covered benefit for ALL Episcopal Clergy with pension assessments paid up to date. Lay employees of the Church are eligible to participate in this same program and churches would be billed directly for this coverage based on the lay employee s total annual compensation. As part of a benefits expansion by CPG (and Church Life), the waiting period was waived for maternity-based Short- Term Disability claims. This product primarily covers shorter-term medical leaves, including maternity leave as noted above, but this type of policy also acts to cover the time period up to a Long Term Disability product s start date. Studies have shown that roughly 30% of the working population will have been disabled at some point in their working career. For either clergy or lay, eligible employees are those working at least 20 hours per week. The CLIC policy provides payments up to 70% of total compensation as reported to CPG, up to $1,000 per week, for up to 52 weeks. There is a 30-day waiting period ( deductible ) for each claim. In the event of a claim, Unum would pay the employer directly and the employer would continue to pay the employee. The 2012 rates have been finalized as of November 8, 2011 and these rates are shown below for budgeting purposes. Salary Monthly Premium Less than $25,000 $8.00 $25,000 to $44,999 $17.50 $45,000 and above $32.00 Information can be found on the Church Pension Group web site, Assistance for this product can also be obtained by dialing Insurance Dental Insurance An optional dental plan is also offered on a church by church basis. This is a basic means of countering adverse selection. The Diocese of Virginia manages a plan with Anthem Dental continuing to be the administrator for Our experience has allowed for a moderate decrease of nearly 10% in our rates from 2011 to Monthly rates for the period through December 31, 2012 are as follows: Carrier Single Couple Parent/Child Parent/Children Family Anthem Dental $ 30 $ 60 $ 60 $ 85 $ 90

13 Insurance Health Insurance General Convention 2009 passed a canonical change that created a Denominational Health Plan (DHP) to be managed by the Medical Trust of the Church Pension Group. This canon requires all persons employed (and compensated) for 1,500 hours or more per year to be provided health insurance by their church employer and to utilize the DHP no later than January 1, The Diocese of Virginia transitioned to this plan as of January 1, Our Virginia Canon 31 requires participation in the plan as chosen by the diocese, so participation is mandated on two levels. Those persons already granted exceptions to the diocesan plan are allowed such exceptions under the DHP and that information is made known to the Medical Trust. Our initial renewal through the Medical Trust was a good one, with a range of +4.3% to +7.4% and blended rates increasing +5.3% across the five carriers and nine plans. For 2012, there was one transition in carrier design, with the CIGNA HMO becoming an open access HMO, giving the user more freedom in selecting health care. For example, CIGNA users will no longer have to declare a primary care physician or require referrals to specialists. Users of that plan should have been contacted by the time these guidelines are issued. One plan, the Aetna Choice POS II, continues to have very low use and continuation of that specific plan will be reviewed in the summer of Monthly rates for the period through December 31, 2012 are as follows: Carrier and Plan Design Single Couple Parent Family CIGNA Open Access HMO $ 465 $ 930 $ 835 $ 1,390 Empire BCBS EPO 90 $ 440 $ 875 $ 790 $ 1,315 Empire BCBS EPO 80 $ 415 $ 825 $ 745 $ 1,240 Kaiser EPO 80 $ 400 $ 810 $ 730 $ 1,215 Empire BCBS High Option PPO $ 570 $ 1,140 $ 985 $ 1,710 Aetna Choice POS II $ 550 $ 1,100 $ 985 $ 1,640 Empire BCBS PPO 80/60 $ 510 $ 1,015 $ 915 $ 1,525 Empire BCBS HDHP/HSA1 $ 370 $ 745 $ 670 $ 1,115 United Healthcare Choice 80 $ 390 $ 775 $ 700 $ 1,160 The diocesan web site provides a great deal of information on this subject, especially as we continue with a multi-carrier, multi-option environment. New employees should be enrolled, or a waiver of participation requested, within 30 days of the date of hire. The annual open enrollment period for the Diocese of Virginia will be announced and will likely be early October and possibly as late as early November. The canonical change for the Episcopal Church includes a standard of parity in provision of benefits for clergy and laity which must be in place by January 1, Parity means that eligible employees are provided the same level of coverage at the same level of cost to the employee, regardless of being ordained or lay. The Executive Board of the diocese has been working on models for this standard during Survey responses have been helpful in guiding the Executive Board. Once established, an employer may provide health insurance benefits in excess of the standard, as long as all eligible employees receive the same level of benefit. As the Executive Board comes closer to a proposed model for use in 2012, these guidelines will be revised. Again, the requirement of the canonical change is that the standard be in place as of January 1, Questions about the diocesan health or insurance plans, enrollment, and assistance in resolving benefit management problems may be addressed to Ms. Laura Cramer at the Mayo Memorial Church House.

14 Insurance Life Insurance Group Term A diocesan sponsored life insurance policy is available through Church Life Insurance Corporation (CLIC). It is available in a base rate of 1x ( one times ) compensation, rounded to the next highest thousand. For clergy, the compensation should include the total compensation reported to the Church Pension Group for assessments. The 2012 diocesan group rate for this amount of coverage is $0.45 per thousand per month, which is the same as our rates. For long-term planning purposes, use the 2012 rating schedule for There is an open enrollment period for parishes and institutions not currently participating in the Group Life insurance plan. Materials are typically mailed each October, and all forms must be returned to CLIC by November 30 of each year. The effective date of this coverage will be January 1, Please check with CPG representatives for current information on enrollment. You may contact Church Life at Insurance Life Insurance - Supplemental The Church Life Insurance Corporation has released a voluntary product to allow clergy (and lay staff) to acquire up to $500,000 in additional life insurance in incremental amounts (based on additional multiples, like the base rate --- 1x, 2x, etc.) Spouses of enrolled employees are also eligible for up to $240,000 of coverage. Rates are age-based per $1,000 of coverage. The CLIC office in New York has notified all churches and clergy that this product is available. Please call the main customer service number at for information on this supplemental life insurance product. An employee who is enrolled in the underlying Group Life product has 31 days to respond from the date of the offer letter mailed by CLIC to the employee s reported address. A revised guideline for the Supplemental Life product is available on the Church Pension Group website. This product does not have a regular open enrollment period beyond the 31-day window noted above. Insurance Life Insurance Tax Issues Imputed Income Please keep in mind that a group life insurance policy of 4x current assessable compensation, up to $100,000 in value, is provided to all active clergy whose pension fund assessments are up to date. This is provided at no cost to the clergy or to the employing church entities. This coverage is provided by a decision of the Trustees of the Church Pension Fund. This was a change effective January 1, Please Note: In accordance with IRC section 79, any person who receives group life insurance benefits in excess of $50,000, an incremental amount of income must be declared on the W-2 form in Box 13. This only applies to GROUP life insurance products, not to any individual policies the employee may have. In any year in which the IRS modifies its table of imputed income the diocesan office will issue a notice advising of the change. As of November 10, 2011, it is understood that the accompanying chart is the most recent tax table to compute the imputed income of this benefit.

15 Insurance Life Insurance Tax Issues Imputed Income Chart Age Bracket Rates Per $1,000 of all Group Life Insurance Coverage Per Month over $50,000 Under 25 $ to 29 $ to 34 $ to 39 $ to 44 $ to 49 $ to 54 $ to 59 $ to 64 $ to 69 $1.27 Over 70 $2.06 Insurance Long-term Care Insurance Long-term Care Insurance is among the fastest growing insurance products on the market. It provides for custodial care due to extended inability to perform activities of daily living. Settings for care can be nursing homes or assisted living facilities, adult day care centers, or even at your home through home health care providers. Many Episcopal Church employees asked if this coverage would ever be made available on a blanket basis. The Church Pension Group listened, and they began offering a long-term care policy in an openenrollment period in Subsequent open enrollments were offered in 2006 and in 2009 through multiple mailings to all known churches and church employees. Outside of an open enrollment period, medical underwriting is necessary for issuance of policies. It is unknown when another open enrollment period might take place, but if this is a product you are considering, you should begin by gathering information on types of coverage you or your family may need to put in place. This product is available on a voluntary basis through the Church Pension Group and is paid for by the individual. The carrier is The Prudential Insurance Company of America, one of the strongest carriers for this type of product. For an enrollment kit, please call Prudential directly at , and explain that the request involves an Episcopal Church participant.

16 Insurance Medicare Supplement A very generous Medicare supplement is available through the Church Pension Fund. Medicare has become increasingly complex but is primarily comprised of Part A and Part B, which cover benefits for hospital/facility care and physicians, respectively. These portions are handled through the Social Security Administration, and if a church employee is considering retirement, it is wise to contact a local Social Security Administration office for more details and schedule a personal visit. To cover shortfalls in covered expenses, Medicare supplements were developed (Part A Supplement and Part B Supplement), and since 2004, the Church Pension Fund has offered three supplement benefit packages. These are available at varying costs to clergy based on a clergy persons credited service. The plans, as noted further on, are also available to lay employees, but are offered without a provided prem With the 2006 creation of Medicare Part D, which provides access to pharmacy benefits, it is now more important than ever to be familiar with the opportunities for medical coverage during retirement years. The Comprehensive Plan supplement is provided at no cost for clergy with 20 or more years of credited service and is subsidized by the Church Pension Group for clergy with over 10 years of credited service. The Plus and Premium Plans provide lower out of pocket costs, but each adds an additional premium cost per month per covered person. Eligible lay employees may also access these plans, but do so at the full cost of the plan. Additional information can be found at the following link to the Church Pension Group web page: For the January 1, 2011 through December 31, 2011 period, sample monthly rates per covered clergy person (or surviving clergy spouse) for supplement plans with prescription coverage included are: Credited Years of Service Comprehensive Plan Plus Plan Premium Plan 20+ $0 $100 $ to 19 $2 to $20 $102 to $120 $162 to $180 5 to 9 $265 $365 $425 The three plans are available to eligible lay employees for the respective costs of $265, $365 and $425. Premiums drop if prescription coverage is excluded, so interested parties should contact Church Pension Group staff for the latest information on premium structure. The election to exclude pharmacy benefits needs to be an informed decision, so please contact your local Social Security Administration office and the Church Pension Group for appropriate help. It is expected that 2012 rates for the Medicare Supplements will be available by late November These guidelines will be revised once those premiums are set.

17 Vestry Considerations Continuation of Benefits It is recommended that Letters of Agreement include a continuation of benefits clause that would cover the immediate period following the death of an actively employed cleric or lay employee. However unlikely this event has been in the history of the Diocese of Virginia, the clause should provide the surviving spouse, and especially when dependent children are involved, a minimum of two months of full cash compensation and up to two months of health insurance. As noted previously in these guidelines, the tax code allowance for a parsonage value terminates upon the death of the cleric, except in the case of a clergy couple. While this pro-rata parsonage allowance is a tax issue for the family, the total compensation of a deceased cleric should still be paid. Churches may certainly be more generous in their support of the decedent s family. Vestry Considerations Continuing Education It is recommended that all contracts or Letters of Agreement for clergy and key lay professionals include a continuing education amount that would cover the materials, expenses or participation in appropriate ongoing professional training for the employee. Like other professionals, the ordained and lay professionals of your church are generally expected to continue to broaden their experience and education. The 2006 General Convention affirmed the canonical requirement of Title III, Canon 9, Section 1, which speaks to the use of continuing education to support the vocational demands of our clergy. Churches are to assist their clergy in this regard in terms of both time and financial support. Churches are encouraged to allow at least two weeks a year and budget at least $500 per year for each member of their clergy staff for this purpose. The cleric, in turn, should report back to the church leadership as to how the experience provided impacted their ministry. Such continuing education time should be approved in advance by the vestry or vestry committee. Similar expectations are suggested for the support of the lay professionals employed by the church. As funds provided for use in a church discretionary fund are donor-directed gifts for charitable and pious uses, the use of such funds by a cleric for expenses related to any approved continuing education is not endorsed, and may create a tax issue for the cleric. Professional development funds should be prospectively budgeted for in the operational budget of the church.

18 Vestry Considerations Maternity and Paternity Leave The 194 th Annual Council of the Diocese of Virginia adopted Resolution R-14 in This resolution provided instruction to the Compensation Committee of the Diocese of Virginia for the development of a standard maternity and/or paternity policy for full-time ordained employees. Their report to Wardens and Vestries of the diocese reads in part: Parental Leave: Regarding Resolution R-14 adopted at the 194 th Annual Council of the Diocese of Virginia, the Committee recommends as a guideline that vestries provide maternity leave of eight weeks with full compensation for full-time parochial clergy mothers, and provide paternity leave of ten days (not including Sundays) with full compensation (within one year of the date of the birth of the child) for full-time parochial clergy fathers. This recommended benefit should be independent of any sick leave policy or vacation time. Again, as a reminder, the Short-Term Disability insurance is included as part of the overall benefits for clergy through the Church Pension Fund when all assessments are up-to-date in payments. Lay employees would have to have Short-Term Disability insurance paid for and as noted previously under the Short- Term Disability section of these guidelines, that billing process is directly through the church employer. PLEASE NOTE: The Church Pension Fund has waived the 30-day waiting period for filing a Shortterm Disability claim when the claim is due to a pregnancy. This should be kept in mind by both the employee and the employing church entity. Although this section on Maternity and Paternity is a guideline of the Diocese of Virginia, and not a requirement, generosity in this area is encouraged for the well being of your church staff. Resolution R-14 in 1989 does not address the example of adoptive parents; much less clergy versus lay, but it is encouraged that the church employer gives adequate consideration to the special needs of adoptive parents and to the needs of their lay staff. As the Diocese of Virginia seeks to bring more young people into leadership roles in the ordained ministry, as well as lay professionals, maternity and paternity leave requests will become more prevalent and as fiduciaries of church resources, we should plan accordingly.